Accounting for intangible assets in accounting: features, requirements and classification

Intangible assets of an organization are formed and accounted for in accordance with applicable law. There is an established methodology by which legal entities reflect this property in the accounting documentation. There are several groups of intangible assets. This is an important point for the procedure for reflecting property in accounting documents. Features of accounting for intangible assets, the basic norms established by law, will be considered below.

General definition

In a market economy, not only tangible assets are a factor in the formation of the organization's income. Today, it can already be said unequivocally that the index of net profit of a company depends on how technological and innovative the production process is. Therefore, there is such a thing as intangible assets. They are deprived of material substance, but their role in the general process of profit is sometimes not only great, but also decisive.

For this reason, intangible assets (intangible assets) are kept records. This is a new accounting item. He appeared at the stage of formation of precisely market relations in our country. However, in all countries the issue of accounting, assessing, the receipt of such assets on the balance sheet is constantly being discussed. There is no single approach to this work. For this reason, there is no international standard for accounting for intangible assets.

It is worth starting with the fact that intangible assets in accounting are a non-current asset, which is reflected in the balance sheet in article 110. This is the least liquid type of property of an enterprise, because it is difficult to quickly transfer to cash. The procedure for their accounting is regulated by the Accounting Regulation PBU 14/2007 as amended. dated 12.24.10 No. 186.

According to this document, the following rights apply to intangible assets that are used by an enterprise for more than 12 months in its business activities:

• Arising from contracts with authors for the use in the production process of their works of literature, science, art.
• On the co-ownership of programs for information technology, as well as databases and other software.
• On the use of patents in the field of innovative inventions, industrial designs, the achievement of modern science and technology, model certificates, trademarks, licenses, etc.
• On the know-how and other similar inventions.

In addition, intangible assets in accounting are also the business reputation of the organization.

Criteria of reference to intangible assets

It is worth noting that the accounting of funds and intangible assets is made in completely different ways. Fixed assets have a tangible, material expression. Intangible assets, in order to be considered as such, must meet certain criteria. They can be economic or legal. Sometimes the organization must prove to the inspection authorities that a particular type of property can be considered intangible assets.

In accordance with legal criteria, accounting for intangible assets is possible in the following cases:

1. The relevant regulatory act should indicate the organization’s right to own a patent, license, or other similar product. There must be a contract concluded with the author. Patents, licenses, software, etc. themselves cannot relate to intangible assets.
2. For each legal category, the established regime should apply.

Economic criteria are:

1. Intangible assets may include property that has been used at an enterprise for more than one year.
2. Such means of production must necessarily generate income.

In other words, funds in the line of intangible assets can be credited to the balance sheet of an enterprise only if an agreement is concluded with the owner of technologies, patents, etc. Moreover, the organization cannot sell its rights to the results of intellectual activity, since this type of asset does not have tangible expression .

Intangible assets bring organization income. If this does not happen, the chief accountant must decide on the need to exclude such property from the balance sheet. Supervisory authorities will demand to prove that intangible assets are profitable. Otherwise, certain tax consequences may arise.

Initial assessment

In PBU intangible assets are kept in a special way. The unit is an inventory object, which means the totality of the rights of one patent or contract.

To accept intangible assets on the balance sheet, its initial cost is taken into account. It is determined at the date of its adoption. Since such property does not have material expression, it is more difficult to establish its initial value than when taking fixed assets onto the balance sheet.

The actual cost of intangible assets is the price that the organization paid in the process of acquiring a patent or other similar agreement, as well as the costs incurred in creating the conditions for using the asset.

In the process of taking intangible assets into account, the costs of their acquisition are also summarized. The category of such expenses includes:

• The value that the organization pays under the contract at the time of alienation of the rights to the result of the seller’s intellectual work.
• Customs fees and duties.
• Amounts of non-refundable taxes, duties, state fees that the organization must pay in the process of acquiring intangible assets.
• Remuneration to intermediaries who helped to acquire the asset.
• The cost of information, consulting services.
• Other expenses associated with the purchase of intangible assets.

When accounting for the initial cost of intangible assets, in addition to the above costs, the accountant has the right to take into account the amount of other expenses. These include the cost of services that the organization pays to third parties under a contract, orders, or when performing research, experiments, design and technological work.

In addition, this category includes the cost of labor of employees employed in the process of creating intangible assets or when performing research, construction, technological work, as well as deductions for social needs. The initial cost of intangible assets also includes the costs of maintaining research laboratories, equipment, and other fixed assets for special purposes.

Not related to the initial cost of intangible assets

In the process of accounting for the receipt of intangible assets, the following items are not included in the costs of their creation:

• Amounts of refundable taxes (except as required by law).
• General business expenses not related to the acquisition of intangible assets.
• Expenditures incurred in previous reporting periods for research, development work.

It is also worth noting that when accounting for intangible assets, organizations do not relate to the amount of the initial cost of expenses on loans received, loans for the purchase of intangible assets. An exception is when the asset is an investment.

It is worth noting that donated intangible assets should be added to the initial cost of intangible assets. The amount to be put on the balance sheet can be determined based on the current market value of the asset at the date of donation. This concept should be understood as the amount of cash that the company could receive in case of sale of the received asset. It can only be determined after an expert assessment.

Purchase Posting Example

Accounting for fixed assets and intangible assets in any organization requires the correct reflection of acquired and disposed assets. For this, accounting conducts the appropriate postings.

Accounting for intangible assets is carried out in accordance with the established methodology. Intangible assets are accounted for on account 04. On subaccount 04.01, intangible assets are taken into account directly, and on subaccount 04.02, R&D expenses.

To reflect the operation for the acquisition of intangible assets, you need to make several transactions. For example, the agreement states that the acquisition price of the right to possess intellectual property is 350 thousand rubles. without VAT. To register this agreement, the company had to pay a state fee. It amounted to 9 thousand rubles. To add the acquired trademark to the state registry, it was necessary to pay another 2.5 thousand rubles.

To reflect the listed operations, the accountant must reflect the operations as follows:

Corresponding transactions are executed in the presence of the required package of documents. The company must have an invoice, contract, acceptance certificate, payment orders. The accounting entries for intangible assets listed above allow you to understand the essence of the procedure for registering property.

Revaluation

In the course of the analytical accounting of intangible assets, the initial cost is not subject to change. Only in cases stipulated by law, is it possible to carry out a similar procedure.

Change in the initial value of intangible assets is allowed in case of depreciation and revaluation. For commercial organizations, such a procedure can be carried out no more than once a year at the end of the reporting period. At the same time, groups of homogeneous intangible assets are reevaluated. Current market value is taken into account, which is determined at market prices at the date of revaluation.

If a revaluation decision is made, then in subsequent periods such assets will need to be revalued regularly. Only in this case, their value will not significantly differ from the market.

In order to reassess intangible assets, the residual value is recalculated. If you need to value property, the result is credited to additional paid-in capital. This amount is equal to the markdown that was made in previous years.

If it is required to mark-off intangible assets, the amount is credited to the financial result and relates to the item of other expenses. In additional paid-in capital, a markdown is reduced.

In the case of accounting for the disposal of intangible assets, the revaluation surplus is transferred from the item of additional capital to retained earnings. Revaluation results are recorded separately in accounting.

Depreciation

Of particular note is the accounting for depreciation of intangible assets. If such property has a useful life, appropriate accruals are made. If the asset is not characterized by such quality, depreciation is not charged.

When intangible assets arrive on the balance sheet of the organization, the organization determines the term of its useful life. The period is expressed in months. During its organization will use this asset. In some cases, the useful life is measured by the quantity of products produced in the future or other natural indicators are applied.

Every year, the organization checks the useful life. If necessary, it is updated. Corresponding adjustments are reflected in accounting.

In this case, accounting for depreciation of intangible assets is carried out in one of the following ways:

• linear;
• write-offs in proportion to the volume of work or products;
• reduced balance;

The company determines the choice of depreciation method on its own, based on calculations of the estimated rate of income. If it is impossible with a high degree of probability to determine this indicator, depreciation of intangible assets is calculated in a linear way.

Depreciation example

Depreciation of intangible assets in accounting is accrued according to the established methodology. The value of the asset will be compensated by charging the depreciation amount and shown on account 05. An entity typically accrues depreciation once a month. For trade organizations, the operation is carried out on the debit of account 44, and for manufacturing companies - on the debit of accounts 23, 20, 26 or 25.

Depreciation can be charged with or without account 05. Postings will be as follows:

Since 2016, companies that use the simplified tax system have received the right to reflect intangible assets and not charge depreciation, but write off assets to expenses at the time the organization incurs expenses.

Tax accounting of intangible assets is an issue to which an accountant should pay appropriate attention. If, for some reason, the inspection authorities do not regard the asset as intangible assets, certain difficulties may arise. There are tax consequences. For example, for income tax, intangible assets are depreciated, which increases the cost of production. If the profit from the use of intangible assets is not proved to be real, depreciation will be regarded as an understatement of the tax base for the calculation of income tax.

Retirement of intangible assets

If an intangible asset is removed from the balance sheet and cannot make a profit for the company, an appropriate procedure is required. The organization carries out a similar procedure, if the term of ownership of the right to a patent, the license has been exhausted. Retirement of intangible assets is also carried out if the company alienates the right to the result of an intellectual product, the transfer of this right to other persons, including without a contract.

If an intangible asset has suffered obsolescence, it must also be deducted from the balance sheet. In some cases, a disposal is made when the asset is transferred to the charter capital of another company, in exchange or gift, as well as in other cases.

At the same time, the accumulated depreciation is written off. Revenues or expenses that arise when writing off intangible assets are charged to the financial results as other income or expenses. The date of write-off is determined by the relevant contracts, regulations that the company has concluded.

The accounting for intangible assets upon disposal is reflected in account 91. If an intangible asset is transferred to the authorized capital of another organization, the contractual value of the asset may be established. Its value quite often exceeds the book value. The excess amount in this case should be reflected on credit 98 accounts. In case of sale or donation of intangible assets, the transaction is subject to VAT. The entries in this case may be as follows:

Business reputation

Special consideration is required to the business reputation of the company, which can also be considered an object of intangible assets. For accounting, this value requires a correct calculation. This is the difference between the purchase price paid by the buyer to the seller during the acquisition of the enterprise as a single production complex, and the sum of the value of the company's property at the date of purchase.

The positive reputation of the organization is considered as an addition to the value paid by the buyer in the process of expecting economic profit. Such unidentified assets are recorded separately as a separate item for inventory.

If the company's reputation is negative, this intangible asset should be considered as a discount in price in the process of the sale of the organization. It arises due to the lack of factors of stable customers. The company also lacks sales and marketing skills, lacks a reputation for quality and business connections, management experience, and sufficient staff qualifications. Other factors can also create a negative business reputation.

By acquiring a business reputation, a company depreciates it. The useful life of this asset is 20 years. If goodwill is positive, it is amortized in a linear fashion. If the company receives a negative business reputation, it is attributed to the financial result, summing up with other income.

Intangible assets are a relatively new object of accounting; nevertheless, they squeezed out means and implements of production. However, involving such assets in circulation, the company faces a number of problems. They are associated with the accounting, application and management of such property. Since the legislative framework in this direction is imperfect, there are no clear classifications of intangible assets, it becomes difficult to analyze intangible assets.

Today, accounting for intangible assets is undergoing certain changes. This is necessary to draw up standards and methodologies for the use of such property. Work is underway to develop a new FSBU. The criteria for the formation of the initial cost, depreciation, retirement from the balance sheet will be reviewed. Other issues will also be considered. This will allow keeping accounting of intangible assets in a standardized way, facilitating the work of the accounting service of enterprises and organizations.